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Alcentra Capital Corporation Announces First Quarter 2019 Financial Results

NEW YORK, May 6, 2019 /PRNewswire/ -- Alcentra Capital Corporation (ABDC) (the "Company"), a provider of debt financing solutions to middle-market companies based primarily in the United States, today announced its financial results for the first quarter of 2019.

First Quarter Highlights

  • Total investment income of $6.4 million
  • Net investment income of $2.9 million, or $0.22 per share
  • Invested approximately $26.0 million of capital into 5 new portfolio investments
  • Received proceeds from repayments, loan dispositions and amortizations on investments of approximately $50.0 million
  • Net asset value of $143.9 million, or $11.17 per share
  • Weighted average debt portfolio yield of approximately 11.2%
  • Repurchased 229,729 shares during the quarter as part of the share repurchase program authorized on November 5, 2018; repurchased approximately 9.5% of shares outstanding since January 1, 2018

Vijay Rajguru, Chairman of the Company, stated, "The Board is pleased with the progress management continues to make in rotating our legacy assets and stabilizing book value per share. At the same time, as management continues to focus on increasing value for stockholders, the Board believes it is also important to explore additional options that may be available to further enhance the value of the Company. As a result, and as we previously announced, the Board decided to enter into a formal process to evaluate potential strategic alternatives and the process is currently ongoing."

Suhail A. Shaikh, Chief Executive Officer of the Company, stated, "We are pleased with our performance in the first quarter of 2019, including successfully exiting several of our legacy investments, reducing the size of our concentrated positions and adding new investments consistent with our revised strategy – all with the backdrop of a relatively light volume quarter in the direct lending market."

First Quarter 2019 Financial Results

For the three months ended March 31, 2019, total investment income was $6.4 million, a decrease of $1.8 million from the $8.2 million of total investment income for the three months ended March 31, 2018. This decrease was due primarily to two prepayment penalties ($1.4 million) received in the first quarter of 2018 along with the continued transition of the portfolio to lower-yielding senior secured loans. For the three months ended March 31, 2019, interest and PIK income comprised $6.2 million and other non-recurring income was $0.2 million. Net investment income for the three months ended March 31, 2019 was $2.9 million, or $0.22 per share, as compared to $3.8 million, or $0.27 per share, for the three months ended March 31, 2018.

For the three months ended March 31, 2019, total net expenses were $3.5 million, a decrease of $0.9 million from the $4.4 million of total net expenses for the three months ended March 31, 2018. Net expenses decreased primarily due to the permanent management fee reduction and temporary management fee waiver that commenced in May 2018. The base net management fee was $0.7 million and there was a reversal of previously accrued incentive fees of $0.5 million. For the three months ended March 31, 2019, higher professional fees and other general and administrative expenses totaled $1.6 million, an increase of $0.3 million from March 31, 2018. The increase was due primarily to an increase in professional, director and other of fees $0.5 million which was offset by a decrease in consulting fees of $0.2 million. The Company expects director fees, insurance fees, consulting fees and other professional expenses to increase on a go-forward basis in light of recent stockholder activist activities and the Board's formal review process to evaluate strategic alternatives for the Company.

For the three months ended March 31, 2019, the Company recorded a net realized loss and net change in unrealized depreciation from portfolio investments of $0.9 million after the provision for taxes. As a result, the Company's net increase in net assets resulting from operations was $2.0 million for the three months ended March 31, 2019.

Portfolio and Investment Activities

As of March 31, 2019, the fair value of the Company's investment portfolio totaled $213.7 million and consisted of 29 investments including 28 companies and 1 rated debt security in a CLO. The average portfolio investment size on a cost and fair market basis was $7.7 million and $7.5 million, respectively. The Company received proceeds from repayments, loan dispositions, and amortizations on investments of approximately $50.0 million during the three months ended March 31, 2019. 

New and add-on investments totaling approximately $26.0 million during the quarter ended March 31, 2019 included the following:

  • Aegis Sciences Corporation – A first lien term loan ($7.3 million) at LIBOR + 5.50%. Aegis operates a forensic toxicology and healthcare sciences laboratory that provides science-driven drug testing and consulting services in the United States.
  • Cambium Learning Group – A second lien term loan ($4.7 million) at LIBOR + 8.50%. Cambium Learning Group is a leading provider of digital resources and instructional products for Pre-k through 12 schools, districts, teachers and students.
  • Clanwilliam Group Ltd. – Add-on first lien investment ($0.3 million) at EURIBOR + 7.00%.  Clanwillian is an existing portfolio company.
  • Institutional Shareholder Services – A first lien term loan ($3.0 million) at LIBOR + 4.50% and a second lien term loan ($1.9 million) at LIBOR + 8.50%. ISS provides proxy advisory, corporate governance and ESG analytic solutions to financial market participants.
  • GGC Aperio Holdings – A first lien term loan ($8.5 million) at LIBOR + 5.0%. Aperio manages domestic and international equity portfolios for ultra-high net worth individuals via large financial intermediaries, including registered investment advisors, broker-dealers and family offices.

As of March 31, 2019, the Company had one debt investment (Southern Technical Institute, Inc.) on non-accrual status.  

A risk rating of the portfolio companies is available on the Company's website presentation (https://investors.alcentracapital.com/events-presentations) and in the MD&A section of the Form 10-Q for the quarter ended March 31, 2019 filed with the SEC.

Liquidity and Capital Resources

At March 31, 2019, the Company had $4.4 million in cash, $28.6 million of borrowings outstanding on its $115.0 million senior secured revolving credit facility and $55.0 million outstanding of Alcentra Capital InterNotes.

Review of Strategic Alternatives

The Company's Board, led by its Committee of Independent Directors, continues to explore a variety of strategic alternatives to enhance long-term stockholder value, including a sale of part or all of the Company, a business combination and other strategic transactions. To assist the Company in this process, the Committee of Independent Directors has retained Houlihan Lokey as its financial advisor. There is no assurance that the review will lead to a transaction. No specific timetable has been set and the Company does not expect to comment further on the review of strategic alternatives or periodically provide updates to the market with additional information unless and until the Board has approved a specific transaction or otherwise deems disclosure to be appropriate or required by law.

Subsequent Events

  • On April 1 and 2, 2019, the Company received total funds of $7.0 million in connection with a debt and equity repayment from Champion ONE, (consisting of $1.1 million in equity value and the principal amount of $5.9 million, respectively).
  • On April 3, 2019, Superior Controls, Inc. repaid its debt and equity for $8.5 million (consisting of the principal amount of $7.1 million and $1.4 million in equity value).
  • On April 4, 2019, the Company paid a dividend to stockholders of record as of March 29, 2019 of $0.18 per share.
  • On April 4, 2019, the Board announced that it had entered into a formal review process to evaluate strategic alternatives for the Company, including a sale of the Company, a business combination and other strategic transactions. The Board authorized its Committee of Independent Directors to lead the process.
  • On April 10, 2019, the Company sold $5.0 million of the first lien loan of Impact Group at 99.5% of par value.
  • On May 3, 2019, the Board approved the 2019 second quarter dividend of $0.18 per share for stockholders of record as of June 28, 2019, payable July 3, 2019. The Board also approved a special spillover dividend of $0.15 per share for the stockholders of record as of June 28, 2019, payable July 3, 2019.  The special dividend was declared by the Board as a result of overearning the quarterly dividend in 2018.
  • On May 3, 2019, the Adviser agreed to a continued temporary waiver of 25 basis points across all of the base management fee breakpoints under the Investment Advisory Agreement, effective from May 1, 2019 to April 30, 2020.

First Quarter 2019 Financial Results Conference Call

Management will host a conference call to discuss the Company's operating and financial results at 9:30 am ET on May 7, 2019. To participate in the conference call, please dial (844) 832-0218 approximately 10 minutes prior to the call. International callers should dial (484) 756-4314. Please reference conference ID 3891513#.

A live webcast of the conference call will be available at http://investors.alcentracapital.com/events-presentations. Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software.

An archived webcast replay will be available on the Company's website until May 7, 2020.

ABOUT ALCENTRA CAPITAL CORPORATION

Alcentra Capital Corporation provides customized debt and equity financing solutions to middle-market companies, which the Company generally defines as U.S. based companies having between $15.0 million and $75.0 million of EBITDA. The Company's investment objective is to provide attractive risk-adjusted returns by generating current income from its debt investments. The Company seeks to partner with business owners, management teams and financial sponsors by providing customized financing for change of ownership transactions, recapitalizations, strategic acquisitions, business expansion and other growth initiatives.

Alcentra Capital Corporation is an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. In addition, for tax purposes, the Company has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code.

FORWARD-LOOKING STATEMENTS

Statements included herein may constitute "forward-looking statements," which relate to future events, including in connection with the exploration of strategic alternatives, or the Company's future performance or financial condition. These statements speak only as of the date of this press release, are based on the Company's current plans, expectations, estimates, projections, beliefs and assumptions and involve risks and uncertainties that could cause actual future events or results to be different than those described in or implied by such forward-looking statements, including those relating to the impact of activist stockholder activities and the strategic alternatives review process on, among other things, the Company's professional and consulting fees and expenses and on management distractions, the nature and timing of any possible transaction or other strategic alternative, or of any potential or anticipated benefits from any such transaction or other alternative, as well as those risks and uncertainties described in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 12, 2019 and in the Company's other filings made with the SEC from time to time. As a result, any forward-looking statements are not guarantees and there can be no assurance that the strategic alternatives review process will result in a transaction or change in the Company's announced strategy. In addition, there is no assurance that the Company will purchase additional shares at any specific discount levels or in any specific amounts under its repurchase program. There is no assurance that the market price of the Company's shares, either absolutely or relative to net asset value, will increase as a result of any share repurchases, or that any repurchase program will enhance stockholder value over the long term. You should not place undue reliance on any forward-looking statements. Except as required by applicable law or regulation, the Company does not undertake any obligation to update its forward-looking statements to reflect future events or circumstances. 

 

 

Alcentra Capital Corporation and Subsidiary


Consolidated Statements of Assets and Liabilities



As of
March 31, 2019
(Unaudited)


As of
 December 31,
2018

Assets


Portfolio investments, at fair value


Non-controlled, non-affiliated investments, at fair value (cost of $206,648,256 and
$212,280,172, respectively)


$

199,599,456


$

205,411,779

Non-controlled, affiliated investments, at fair value (cost of $26,482,025 and
$26,385,612, respectively)



14,149,845



12,980,016

Controlled, affiliated investments, at fair value (cost $0 and $15,212,562,
respectively)





16,406,021

Cash



4,362,418



11,049,499

Dividends and interest receivable



1,241,095



454,883

Receivable for investments sold



7,797,809



644,733

Deferred financing costs



1,160,277



1,366,393

Deferred tax asset



5,132,895



5,385,694

Prepaid expenses and other assets



46,075



79,410

Total Assets


$

233,489,870


$

253,778,428



Liabilities


Credit facility payable


$

28,568,305


$

28,536,441

Notes payable (net of deferred note offering costs of $752,071 and $855,433,
respectively)



54,247,929



54,144,567

Payable for investments purchased





18,550,000

Other accrued expenses and liabilities



466,521



535,096

Directors' fees payable



130,000



36,125

Professional fees payable



661,207



554,173

Interest and credit facility expense payable



1,529,992



1,069,139

Management fee payable



721,348



765,659

Income-based incentive fees payable



403,672



890,796

Distributions payable



2,433,102



2,433,102

Unearned structuring fee revenue



59,540



81,643

Income tax liability



412,944



379,155

Total Liabilities



89,634,560



107,975,896



Commitments and Contingencies (Note 12)




Net Assets


Common stock, par value $0.001 per share (100,000,000 shares authorized, 12,875,566
and 13,105,295 shares issued and outstanding, respectively)



12,876



13,105

Additional paid-in capital



197,118,476



198,594,662

Distributable earnings (accumulated loss)



(53,276,042)



(52,805,235)

Total Net Assets



143,855,310



145,802,532

Total Liabilities and Net Assets


$

233,489,870


$

253,778,428



Net Asset Value Per Share


$

11.17


$

11.13

 

 

Alcentra Capital Corporation and Subsidiary




Consolidated Statements of Operations





For the three months
ended  March 31, 2019
(Unaudited)


For the three months
ended  March 31, 2018
(Unaudited)



Investment Income:


From non-controlled, non-affiliated investments:


Interest income from portfolio investments


$

5,806,309


$

5,742,386


Paid-in-kind interest income from portfolio investments



84,504



199,650


Other income from portfolio investments



107,757



1,507,304


Dividend income from portfolio investments





30,756


From non-controlled, affiliated investments:


Interest income from portfolio investments



36,479



77,453


Paid in-kind income from portfolio investments



96,413



123,126


Other income from portfolio investments






From controlled, affiliated investments:


Interest income from portfolio investments



208,538



500,890


Paid in-kind income from portfolio investments






Other income from portfolio investments



87,116




Total investment income



6,427,116



8,181,565




Expenses:


Management fees



865,618



1,234,863


Income-based incentive fees



(487,124)




Professional fees



625,229



354,070


Valuation services



71,250



63,971


Interest and credit facility expense



1,417,450



1,694,887


Amortization of deferred financing costs



206,116



103,981


Directors' fees



159,676



96,202


Insurance expense



55,835



55,988


Amortization of deferred note offering costs



133,363



126,694


Consulting fees



111,601



305,038


Excise tax



468,432



329,575


Other expenses



62,448



40,136


Total expenses



3,689,894



4,405,405


Waiver of management fees



(144,270)




Net expenses



3,545,624



4,405,405


Net investment income and foreign currency transactions



2,881,492



3,776,160




Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) From Portfolio Investments


Net realized gain (loss) on:


Non-controlled, non-affiliated investments



(1,715,758)



(14,815)


Non-controlled, affiliated investments






Controlled, affiliated investments



1,193,458




Foreign currency transactions



40,416




Net realized gain (loss) from portfolio investments and foreign
currency transactions



(481,884)



(14,815)


Net change in unrealized appreciation (depreciation) on:


Non-controlled, non-affiliated investments



(180,407)



(333,426)


Non-controlled, affiliated investments



1,073,416



(107,374)


Controlled, affiliated investments



(1,193,459)



220,904


Foreign currency translation



115,935




Net change in unrealized appreciation (depreciation) from
portfolio investments and foreign currency translation



(184,515)



(219,896)


Benefit (Provision) for income taxes on unrealized gain (loss) on
investments



(252,798)



(2,489)


Net realized gain (loss) and net change in unrealized appreciation
(depreciation) from portfolio investments



(919,197)



(237,200)


Net Increase (Decrease) in Net Assets Resulting from Operations


$

1,962,295


$

3,538,960




Basic and diluted:


Net investment income per share


$

0.22


$

0.27


Earnings (loss) per share


$

0.15


$

0.25


Weighted Average Shares of Common Stock Outstanding



12,906,379



14,198,651


Dividends declared per common share


$

0.180


$

0.180




 

Cision

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